Best CFD Brokers UK (2023)

Contracts For Differences seriously amplify results. The thing is, it goes either direction.

How it works: You guess the future price of an asset. If your guess is correct, you will get profits. There is no physical ownership of underlying instruments.

In this guide, we cover the best CFD brokers for that.

Table of Contents:

• Our Top Picks of Best CFD Services UK
• 1. 📘 eToro
• 2. 📘 Plus500
• 3. 📘 XTB Online Trading
• 4. 📘 CMC Markets
• 5. 📘 AvaTrade
• 6. 📘 Trading 212
• Guide for Choosing your Top CFD Broker
• FAQs

This section is good for newbies still learning how contracts for differences work. It will also help when making a buying decision on the best CFD broker to use:

CFDs Explained: Similar to options trading - and contrasting with traditional investments - they let traders bet on price moves for an asset without owning that asset upfront, and also allow traders investing with or against the market for profit.

In other words, because ownership of the asset isn’t needed, traders can sell off contracts and make gains even if prices fall (known as shorting), or lose if prices rise. Secondly, CFDs open up access to worldwide markets - indices, commodities, and shares, etc - all in the same singular environment.

Because you don’t own the actual underlying asset, you’re instead purchasing a set number of CFD contracts (also known as CFD units) on the exchange - if it seems the price will go up then you’re buying for profit, or if you think it will drop then you’re selling for profit.

How CFDs are priced reflects real-time price changes across time. Which means it’s sort of like you’re doing traditional investment. If a stock goes up in price, for instance, then you can sell a buy position at a profit.

How much leverage that is enabled on a CFD trade impacts its exposure, and therefore the size of wins or losses. In the screenshot given for Apple, a leverage of 5X has been used in either direction. Therefore, profits and losses are figured out from the price differences between the opening of the CFD and how much it is exited (bought or sold off) for. Either way, results are amplified:

• 5 times more gains are given for each point that the instrument’s price moves in your predicted direction.
• 5 times more losses are given for each point that the instrument’s price moves away from your predicted direction.

In this example: In essence, you are putting up 20% (100 / 5 or roughly £43) of the underlying assets' full market value. The CFD broker loans you the rest, so that you can run a trade that, in fact, has a full value of £215.

Countries Where You Can Trade CFDs 

CFD contracts are illegal in the US. Under the Securities and Exchange Commission (SEC), they can only be traded by nonresidents.

But these contracts are legal in regulated OTC markets, in numerous large trading countries, including the UK, Belgium, Denmark, Norway, Italy, Germany, Switzerland, Singapore, Spain, France, New Zealand, Hong Kong, South Africa, Canada, Thailand, Sweden, and the Netherlands.

Australia recently cut off CFD access to retail traders. Its main financial regulatory body, Australian Securities and Investment Commission (ASIC) announced these changes in the first quarter of 2021. The aim was to bolster consumer safeguards by lowering the potential damage of CFD leverages an associated predatory sales practices.

Enormous Leverage & Exposure to Global Markets - from One Source 

You get extreme leverage compared to most instruments on the traditional financial markets. 

Many CFDs have 24/7 access to major worldwide markets. The lower margin needed also means less upfront capital for investment, as well as higher potential gains. But this can amplify losses. Regulations mean that standard leverages are 3% (i.e. 3:1) and could rise to 50% (2:1).

Ability to Go Short

Some markets need you to borrow an instrument first - before being able to sell short - or they have separate margin specs for short and long contracts. CFDs, however, naturally allow shorting without extra borrowing costs because the underlying asset isn’t being owned (e.g. no need to borrow stocks or commodities).

Most of the Same Execution Functions as Traditional Brokers

Many of the best CFD brokers will give you the same order functions such as limits, stops, and contingent orders - for instance “if done” or “one cancels the other.” A few allow guaranteed stops but for extra cost. But brokers in large make their money from spread fees (based on how volatile the asset is; sometimes fixed spreads are offered).

Absence of Day Trading Restrictions 

Many traditional markets put minimums on the starting capital for day trading, or limit trading volume frequency for some accounts - but contracts for differences markets do not have this restraint. Accounts can be created for less than £750, but around £1500 and £3700 are the most typical minimum deposits.

Diversity of Trading 

Access to a diverse range of financial vehicles - which would be harder to trade on exchanges: currencies, sectors, and indices, stocks, treasuries, and commodities.

Spread Fees 

Traders need to pay the spreads for every opening and closing of the position which removes the ability to profit on smaller price changes.

Poorer Regulation

There is less regulation in this industry. Brokers are able to survive based on reputation, features, and track-record, rather than governmental oversight or liquidity. 

Hazards 

The world of CFD trading requires continuous responsive vigilance. Liquidity and margins are the key two-pronged hazards: Positions can be automatically closed if margins fall short of the minimum, so sudden swing in the wrong direction can end a potentially successful long trade.

Meanwhile, leverage magnifies the possible profits and losses. Stop loss limits cannot provide guaranteed safeguards against sudden price swings or market closures. There may also be latency lags in executions.

The three main CFD costs are as follows:

• Commission (sometimes)
• Financing (sometimes)
• The spread - which you always pay; this is the difference between the asking price and closing price when the contract is closed.

Commodities and forex currency pairs normally don’t have any commission fees. But contracts for differences brokers usually charge the commission for stocks.

For instance, CMC markets, which is a UK headquartered financial brokerage, charges commissions beginning from 0.10% (this is less than a penny for many shares). And commissioners are split into two pieces: opening and closing of the trade.

Financing fees kick in for long positions; because day-to-day positions fall into the investment category (remember, the trader is holding the provider’s money in order to purchase the asset indirectly). This is an interest rate for each day the position is held for.

For instance, let’s say you’re buying CFD units for underlying stocks in the HostingData company. Suppose our current price is £20.00. But you expect that the share price will rise to £23 per share. Which means the initial spread is £24.00-20.00.

There is a 0.1% commission for starting the position, and again when it’s closed. For long holds, there will be overnight fees (usually 2.5% + the LIBOR interest rate).

You buy 60 contracts for £20 per share, taking your position to £1200. Suppose that the share price rises to £24 in 16 days. The starting trade is £1200 by the end trade is £1440, which is a £240 profit.

But because commissions are 0.1% both times (1200 / 1000 x 2), that totals £2.40. And let’s suppose the sum interest rate is 7.5% across 16 days (60 x £24 x 0.075 / 365 = 30p. Because this was held up for 16 days, this is 24p x 16 = £4.80 rounded up).

£240 profit – £2.40 (commissions) – £4.80 =  £192.80.

What Are CFDs?

Contracts for differences (CFDs) are contracts between brokers and investors where investors speculate on the future price of an asset. Differences in opening and closing trade prices are settled in cash. There is no physical transference of goods or securities; the underlying asset isn’t traded. And there are often associated fees.

Is Trading CFDs Risky?

CFDs can be very risky; traders who use them consider the potential upside worth the risk, which includes weak industry regulation, possible low liquidity, and the need to maintain high enough margins against the leverage. 

How Are CFDs Traded?

Through two transactions: opening the trade and reversing it:

• ✔️ For initial trades that are long or buy positions, the closing trade (second trade) will be a sell. But for initial positions that are short or selling, the closing trade is to purchase. 
• ✔️ The outcome is the difference between the starting trade and the closing trade (minus any interest or commissions).